Watch stocks you care about

I can't remember exactly where designer watches come in Maslow's hierarchy of needs, but I'm sure they're in there somewhere. That might explain how Fossil (NASDAQ: FOSL) has managed to make such a strong and extended run. The stock is up 12% this year, and 50% over the last 12 months. All that growth has pushed Fossil's P/E to 18, but it's still substantially cheaper than many of the luxury brands it mingles with.

That in itself isn't a good reason to buy Fossil, but it does make it more attractive. In addition, the watch retailer also has strong sales growth and excellent brand tie-ins. Here's a rundown of the three reasons I like Fossil, right now.

Retail sales risingFossil is a wholesaler first -- we'll cover that next -- but it also runs a successful retail business. Last quarter, the company boasted a 4.3% increase in comparable sales, bucking the cold-weather downer that many retailers saw. That increase resulted in retail sales accounting for almost a quarter of total sales, and highlighted the strength that Fossil's own brand has.

As a retailer, Fossil has worked to grow the share of its income generated in its own stores. That has led the company to expand its product line, and it now carries bags, jewelry, and other accessories. While not every category has made a splash each quarter, the company has managed to make itself a force to be reckoned with in the mall. Comparable sales have now grown for the last 20 quarters. That's a trend investors can get behind.

Wholesale growth On the wholesale side of the business, Fossil is really playing to its strengths. Last quarter, wholesale revenue rose 13.5%, with the European division seeing the strongest growth. That business competes most directly with the Movado Group (NYSE: MOV) , which produces watches for most of the designers that Fossil doesn't cover. To compare, Movado's revenue was up just 6.1% last quarter. Fossil's edge came from the company's strong portfolio of brands -- which is what we're going to call a segue.

Strong brand portfolio The company produces watches for Michael Kors (NYSE: KORS) , DKNY, and Adidas, to name a few. That stacks up against Movado's collection of Tommy Hilfiger, Hugo Boss, and Coach. Recently, Kors has been driving the train at Fossil. Management on both sides of the partnership called out the strength of the business, with Kors calling out watches as one of its biggest business drivers. Watches have helped Kors push its comparable sales along at breakneck speed, and that's not going to stop anytime soon.

While Movado's Coach tie-in is generating sales, the company has struggled to strike the right tone with the watches. Later this year, Movado is going to give it another try, repositioning the brand message associated with its Coach line, in the hope that it will help spur sales.

Looking ahead, Fossil is hopeful that its partnership with Tory Burch will start to accelerate sales. Burch is rumored to be mere months away from an IPO, and industry onlookers have been referring to it as the next Kors. If that pans out, Fossil could see a jump in sales as the brand explodes into the marketplace. With its strong Fossil brand sales, excellent wholesale growth, and huge potential in its growing portfolio, Fossil looks like a good bet.

Michael Kors is one of today's hottest high-end fashion brands, and that's translated into one of the best-performing stocks in retail -- since its debut on the market in late 2011, the share price has more than doubled. But with all that growth, has the stock finally become too expensive, or is there still room left to run? The Motley Fool's premium report on Michael Kors gives investors all the information they need to make the right decision. We cover the key must-watch areas, opportunities, and threats to the company that investors need to know. To claim your copy, simply click here now for instant access.

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